Vistin Pharma ASA

OSE:VISTN

Earnings Call Transcript 2024-Q1

[Operator]

Good day, and thank you for standing by. Welcome to the Vistin Pharma Quarterly Report First Quarter 2024 Webcast Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. It is now my pleasure to hand you over to the CEO of Vistin Pharma, Magnus Tolleshaug. Please go ahead.

[Magnus Tolleshaug, executive]

Yes, thank you, and welcome all to this first quarter 2024 presentation. We will now start by going through the highlights of the quarter. The revenue of the first quarter ended at NOK 104 million versus NOK 101 million in the first quarter of 2023. The 11% increased sales volume compared to the same quarter last year has resulted in higher revenue. We have had an unplanned maintenance repair on the line 2 in the quarter, which has resulted in a lower-than-planned production and sales volume. The EBITDA of the first quarter ended at NOK 20 million versus NOK 14 million in the first quarter 2023, an increase of 45% if we compare this quarter with the first quarter of 2023. The EBITDA was positively affected by increased sales volume and the product mix. And the EBITDA was negatively affected by a onetime inventory adjustment of NOK 7 million.

After the unplanned maintenance and repair on line 2 in the first quarter, the line has been producing according to plan from fiscal week 14. Fiscal week 14, that's the first week of April. The line 2 was under repair for several weeks in Q1, so we lost some volume there. However, it shows that we have a robust business now with the 2 lines. We are able to deliver NOK 20 million on the bottom line, even with an unplanned stop and some inventory write-off. The acquisition of 15% of CF Pharma was completed and paid in March. Additional dividend of NOK 0.75 per share was paid in January 2024 to the shareholders. And the Board of Directors will propose for the Annual General Meeting an ordinary dividend of a total of NOK 1 per share to be paid partly in June with NOK 0.5 and the remaining part in November with NOK 0.5.

Vistin Pharma, we are a pure-play metformin company and with the right outlook, as we like to say. Diabetes is one of the largest health emergencies in the 21st century around 550 million people as diabetes today and about 90% of those are type 2 diabetes. And typically, type 2 diabetes is treated with the first-line treatment metformin, which is the gold standard treatment for type 2 diabetes. And we have a bright outlook for Vistin Pharma as we like to say, as we are a leading global producer of premium quality metformin. The market demand for Metformin is expected to grow with a compound annual growth rate of 5% to 6% on an annual basis. Vistin has a global market share, our global market share will be approximately 10% with the new capacity. It's about 10% today and it will remain 10% because we are growing in a growing market.

For those following us from quarter-to-quarter, you have probably seen this slide before, but it is worthwhile then mentioning, we think, especially for new participants. Diabetes is really a global epidemic. More than 5 million people die every year of diabetes and the number of people with diabetes in the world is expected to increase by 50% from 2019 to 2045, up to 750 million people. So it's really an epidemic. And at Vistin, we are proud of delivering medication which is affordable, efficacious and has a good safety profile to people around the world, especially patients in low and middle-income countries who typically can afford metformin, which is normally paid out of pockets in those countries. So for us, this gives purpose to what we do for sure.

This is just a quick map of our sales and distribution areas in the world. We have a global sales. We sell all the way from Japan in the East to U.S. and LatAm in the West. We typically then deliver the API to pharmaceutical companies, who then transform this into the finished drug products and then put it into blisters and bottles and distributed to wholesales and pharmacies around the world. So today, around more than -- Vistin Pharma API is at least sold in more than 100 countries in the world.

Vistin Pharma has had a long and successful growth track record. The company, as you can see from the graph here, is in optimizing and fine-tuning our -- the business and manufacturing for many years. And in 2022, we installed the second manufacturing line. And from 2023, that was the first year with full year with 2 manufacturing lines. It's nice to see that the new line and the 2 lines is materializing into sales. And all the way to the right, you can see the numbers of the first quarter 2024, which, as mentioned, was partly impacted by an unplanned maintenance stop in the quarter.

And with that, I will hand over to our CFO, Mr. Alexander Karlsen, who will go through the figures behind.

[Alexander Karlsen, executive]

Thank you, Magnus. I think we've already been touching on the sales volume. However, as we can see, there's a nice increase from around 1,100 tonnes in the first quarter of 2023 and to around 1,230 tonnes in this quarter. The sales volume also, as mentioned, limited by the unplanned stop on line 2 and the unplanned stop will also limit some of our -- limit available volumes in the beginning of the second quarter.

The revenue increased from NOK 101 million in first quarter last year compared to NOK 104 million this quarter, it is driven by the already mentioned volume increase. However, it's important to emphasize that the global market price for metformin has gone down since Q1 last year. And that's due to the decreasing prices of input factors like raw materials and freight. Having a look at the gross margin, which came in at around 56%. This was affected by the one-time net negative inventory adjustment of NOK 7 million, there were a write-off in the first quarter due to some material produced, but not complying with Vistin's strict quality standards.

Excluding the onetime inventory adjustment, the gross margin would have been around 60%, which is according to our ambition. EBITDA came in at NOK 20 million compared to NOK 14 million in Q1 last year, which is a nice 45% increase. And the increase is driven by the higher sales volume and a favorable product mix. And again, unfortunately, the EBITDA was negatively affected by an inventory/write-off of NOK 7 million in the quarter.

Looking at the key figures, we've been through the revenue and the EBITDA. Looking at the EBIT, which came in at around NOK 15.8 million compared to NOK 9.9 million last year. Depreciation has an increase compared to last year, and that's driven that we did not capitalize and start to depreciate all the MEP equipment before in Q2 last year. Net finance negative with NOK 5.9 million, where NOK 3 million of this is unrealized FX loss on future cash flow hedges, so no cash effect in the quarter. That gives a profit before tax of NOK 9.8 million and a net profit of NOK 7.7 million for this quarter compared to negative NOK 2.98 million Q1 last year.

Going to the balance sheet, starting with the assets. Total noncurrent assets of around NOK 250.5 million, which is mainly the fixed assets. Total current assets of NOK 149.9 million which in total give total assets of around NOK 400 million, which is similar as previous years. We still see reduced freight lead times through the Suez Canal. However, there has not been an impact on production in the first quarter as we have local safety stock of critical raw materials.

Having a look at the equity and liability side of the balance sheet, total equity as of end March, NOK 297 million. There should be a decrease in the share premium in the quarter, driven by the dividend payout of around NOK 33 million in January. Total noncurrent liabilities, NOK 10.4 million and current liabilities of around NOK 92.7 million. There's a change from a net cash position as of end 2023 to a net debt position of NOK 19 million as of end of March. And this is driven by the mentioned dividend payout and the acquisition of 15% of the shares in CF Pharma. Total liabilities, NOK 103 million, while total equity and liabilities equals around NOK 400 million. I think that was all from my side, Magnus. I'll give the word back to you.

[Magnus Tolleshaug, executive]

Yes. Thank you, Alexander. I will talk a bit about our strategy, our double capacity, Double Care Metformin strategy. Our aim is to double our capacity without increasing the impact on the environment or local community. It's consisting of 4 pillars. We are strategically positioned producer of 2 different Metformin products today, Metformin HCL, which is the API and direct compressible granules, DC grade. This is a preprocessed granules that we sell to customers so that they can put directly on their tableting machines to avoid the unit operation of granulation and thereby save time and costs.

We continuously work to enhance our capability to supply tailor-made products. This is important because different customers have different needs. We work on improving our cost of goods by investing in cost-efficient supply of raw materials. We are typically multi-sourced on key materials so that we're able to get good prices in the market, and we're leaning our processes. And we are strategically well positioned as many European customers prefer high-quality supplies, near-shore production and a leading ESG profile. Vistin Pharma had a lucrative ESG profile. Just as an example, we use 100% sustainable hydropower, which, of course, gives a different carbon footprint than if you produce metformin with coal power, which is quite often been done in the Asian part of the world.

We have an attractive growth potential with the new production line, which was installed in 2022. We looked at the figures. We had an increase in sales volume from 2022 to 2023 of 44%, and Vistin is experiencing a strong demand for our metformin. We are a premium producer in a competitive market. Typically, we sell to reputable international pharmaceutical companies. We have a state-of-the-art, fully automated manufacturing plants in Kragerø, Norway, and we are certified by all significant international regulatory bodies. And we typically work with long-term partnerships with the customers, and we are positioned in the high-quality premium segment. The Metformin market is expected to continue to grow by 5% to 6% annually, and Diabetes is one of the largest health crisis over the 21st century. And the Metformin is expected to maintain its position as the gold standard treatment for type 2 diabetes in the foreseeable future. Metformin is typically used as a baseline treatment. And the additional demand for metformin in the world is by industry experts forecasted to grow by approximately 23,000 metric tons by 2028.

Talk a bit about the -- what we call the second wave of growth. We announced during our Capital Markets Day in 2023 and also in the last quarterly report, our strategic intent to become a European multiproduct CDMO, with more products to offer from our portfolio. So Vistin has acquired 15% of CF Pharma in Hungary at the transaction price cap of EUR 1.6 million which consists of a base price and an earn-out element. CF Pharma is an API CDMO. CDMO stands for contract development and manufacturing organization. They are located in Budapest in Hungary with a broad customer base of recognized international pharmaceutical companies. CF Pharma has a proven track record in developing and commercializing active pharmaceutical ingredients, APIs. And the company currently has 5 commercial APIs in the market with another 8 APIs under development in R&D.

CF Pharma has an extensive production site of around 150,000 square meters located centrally in Budapest. And they have around 170 employees and an extensive R&D department for development of new products and the processes. Some ballpark figures, the annual revenue of CF Pharma has been around EUR 10 million to EUR 14 million with -- in the previous 3 years, the EBITDA has been between EUR 1 million to EUR 3 million. We see this acquisition of a 15% minority post as a first agreed step in a potential closer partnership in the future. This may broaden our product portfolio and form an important basis for future growth and opportunities. So more to come on this as it develops forward. And with that, I think we are done with the presentation and can open up for questions.

[Operator]

[Operator Instructions]

[Alexander Karlsen, executive]

So we have already received a couple of questions here. The first one is related to how many days in the first quarter was the second production line down?

We can say that it was down significantly part of the first quarter.

Then there is a question about competition from other medicines. I think Magnus, you can take that?

[Magnus Tolleshaug, executive]

Yes, I can do that. It's a natural question because there's a lot of talk in the media and they are writing about the semaglutide, Ozempic and Wegovy and Mounjaro products out there. Metformin is, as mentioned, the gold standard treatment for metformin type 2 diabetes, 90% of people with diabetes have a diabetes type 2. If you look at the costs of Wegovy or Ozempic, the list price of Ozempic, just to make an example, is USD 900 for 4 weeks treatment. If you compare that with metformin, which is about $3 for 4 weeks. We do not expect that semaglutide or these other will have any impact on our business and the consumption of metformin because it's used as a baseline treatment. But it's a good alternative also for obesity patients for the treatment of that.

[Alexander Karlsen, executive]

Thank you, Magnus. And then there's a question about when we can expect the production to run at max capacity.

I think we can say that we are continuously ramping up, but this is also depending on the sales volume and the mix. But yes, I think that's what we will comment on that.

[Magnus Tolleshaug, executive]

Yes.

[Alexander Karlsen, executive]

And there's a question about on the raw materials from China.

I think there are 2 main raw materials from -- to produce metformin, which is DMA and DCDA. And for both of these, we have several suppliers we're not single sourced, but DCDA is mainly sourced from China, but from several different suppliers.

There's another question about investment in reusing water and start status for that project.

I can say that the project installation was completed in the first quarter. And this is a product where we will reuse all the water that they use to cool down the reactors in the production. We spend today or before the installation with a lot of drinking off from Kragerø to cool down the equipment. But now with the recycling of the water, there will be a significantly cost savings from this project, and we expect that this costing will start in the second quarter. We are currently testing and running up the recycling equipment.

[Magnus Tolleshaug, executive]

Yes, then there's a question here about if we can elaborate more on the investment in CF Pharma. We see this acquisition of the 15% minority share as the first agreed step in a potential closer partnership in the future. And CF Pharma, they have a pipeline today. There are different ways of collaborating with CF Pharma in the future. It could be via products. It could be via introducing new products to the market via Vistin or other ways of business. This is a process that we now go through with CF Pharma to sit and look for opportunities. But also today, we have a robust business with a good cash flow and earnings. So said that, we are also opportunistic when it comes to other options to grow our business further.

[Alexander Karlsen, executive]

And there is a question on the sales pipeline. Maybe you can answer that, Magnus.

[Magnus Tolleshaug, executive]

Yes. So we typically have today only metformin API and the DC grade, and we are working on also customizing some of the products we have under metformin with the partnership with CF Pharma our ambition is also to discuss opportunities of business just to look for other products to fill into the pipeline. But there are no concrete products in the pipeline at this point.

[Alexander Karlsen, executive]

I think that's all the questions we have received. So I think we can now close the call.

[Operator]

Thank you. That concludes today's conference call. Thank you all for participating. You may now disconnect.